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CI Global High Dividend Advantage Fund Epoch Investment Partners, Inc.

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Presentation on theme: "CI Global High Dividend Advantage Fund Epoch Investment Partners, Inc."— Presentation transcript:

1 CI Global High Dividend Advantage Fund Epoch Investment Partners, Inc.

2 2 Highlights A Case for Global Shareholder Yield Portfolio Characteristics Table of Contents

3 3 Actively Managed Portfolio  Exposure to Global Portfolio focused on “Shareholder Yield” comprised of:  High Dividend Paying Securities  MLPs / REITs  Equities  Diversified by company, geography and industry  Proven investment strategy: Epoch Investment Partners Highlights

4 4 Attractive, tax efficient monthly distributions  6% annual initial target distribution  Approx. 8.5% pre-tax interest equivalent  Forward structure recharacterizes income into tax-efficient capital gains, return of capital  Benefits of traditional Closed End funds without their drawbacks Highlights

5 5 Details  Price: $10 per unit  Minimum investment: $500  Target Yield: 6% (8.5% pre-tax equivalent) Commission ISCDSCLLMLL Class A0-5%5.00%2.00%3.00% Service Fees ISCDSCLLMLL Class A1.00%0.50%0.50% first 3 yrs 1.00% thereafter 0.40% first 4 yrs 1.00% thereafter Fund Name Fund Code Class AClass FClass I ISCDSCLLMLLISC CI Global High Dividend Advantage Fund CI Global High Dividend Advantage Fund US$ N/A

6 A Case for Global Shareholder Yield Epoch Investment Partners, Inc. William W. Priest, CFA, CPA Chief Executive Officer/Chief Investment Officer Michael A. Welhoelter, CFA Managing Director, Portfolio Manager

7 7  Financial Economy & Real Economy Are Linked – Role of Inflation and Interest Rates  Changing Order Within Sources of Return Leads to Rising Importance of Yield  Globalization Turbo-Charges Global Real Growth and Enhances Free Cash Flow Growth Rates  Importance of Free Cash Flow Metric for Capital Allocation Options  Dividends and Shareholder Yield  Summary Case for Shareholder Yield Backdrop

8 Financial Economy and Real Economy are Linked - Role of Inflation and Interest Rates

9 9 Real and Financial Economy: Directly Connected Real GDP Inflation Stock Market Level P/E Ratio EPS Nominal GDP + = Real EconomyFinancial Economy x

10 10 “3.11- A Rate, Not A Date” – Bill Priest “Following almost 20 years of expanding P/E ratios, interest rates are poised to rise, thereby eliminating P/E ratios as the major driver of total equity returns as was the case over the period.”* * See Bill Priest’s Paper “3.11- A Rate, Not a Date”

11 11 P/E’s Are Inversely Related to Interest Rates Sources of Equity Returns: P/E’s, Earnings, & Dividends Trailing P/E Ratio Long Term Government Bond Interest Rate Interest Rates (%) on 10-year Gov’t Securities P/E ratios at year end Source: Epoch Investment Partners/Standard & Poors

12 12 Nominal GDP and Earnings: Long-term History Nominal GDP, LN(GDP) S&P 500 EPS, LN(EPS) Ln Nominal GDP Ln S&P 500 Earnings Per Share Sources of Equity Returns: P/E’s, Earnings, & Dividends Source: Epoch Investment Partners/Standard & Poors

13 Changing Order Within the Sources of Return Leads to Rising Importance of Yield

14 14 1.P/E’s 2.Earnings 3.Dividends Sources of Equity Returns

15 15 Components of Compound Annual Total Returns for Trailing 10-year Periods (S&P 500 Composite ) -10% -5% 0% 5% 10% 15% 20% Ending Date of 10-year Period Combined Effects P/E Expansion Earnings Growth Dividends & Reinvestment Total Return Sources of Equity Returns: P/E’s, Earnings, & Dividends Source: Epoch Investment Partners/Standard & Poors

16 Globalization Turbo-Charges Real Growth and Enhances Free Cash Flow Growth

17 17 Turbo-Charging Real Economic Growth Through:  Globalization and its Instrument –  The Law of Comparative Advantage  “Volume of tradable goods has doubled in the past five years”  Emergence of new trading paradigms has led to: - Stephen Roach Economist, Morgan Stanley Productivity Profitability Inflation

18 Importance of Free Cash Flow Metric for Capital Allocation Options

19 19 From an investor’s perspective, “Free cash flow is the cash available for distribution to investors after all planned capital investment and taxes.”*  “But, accountants define the cash flow of a company as the sum of net income plus depreciation and other non-cash items that are subtracted in computing net income.”* - too inadequate for financial decisions Free cash flow is emerging as dominant capital allocation driver and hence, that of equity returns as well  Rise in Private Capital Firms emphasizing role of free cash flow exclusively Importance of Free Cash Flow Analysis for Capital Application Options *Valuations for Mergers, Buyouts, and Restructuring, Enrique R. Arzac “The New Kings of Capitalism” Economist

20 20 Free Cash Flow Options Acquisitions Reinvestment in Business Firm Growth Shareholder Yield Dividends Share repurchase Debt reduction

21 21 Dividends and Shareholder Yield

22 22 Shareholder Yield is a better measure of a firm’s ability to deliver income to investors  Application of free cash flow model clarifies components  Traditional dividend measures fail to capture all shareholder yield contributions  Buybacks and debt reduction are now viewed as important use of cash Dividends and Shareholder Yield

23  Dividend Yield will be re-defined as Shareholder Yield with ascendancy of free cash flow metric  Shareholder Yield will rise sharply as corporations more efficiently use their capital Source: Corporate Reports, Empirical Research Partners Analysis. 1 Largest 1,500 stocks; data smoothed on a trailing one-year basis. Excluding Microsoft's special dividend in 12/2004. Dividends as a Share of Free Cash Flow Through November 2005 Current Dividend Yield to become Shareholder Yield

24 24 Shareholder Yield positively affected by emerging compensation policies Shareholder Yield  Restricted Stock Units

25 Summary Case for Shareholder Yield

26 26 Summary Case for Shareholder Yield  Interest rates will stay flat or rise for the foreseeable future.  P/E ratios will stay flat or fall.  To the extent that equities deliver positive returns, such positive returns will, out of necessity, be driven by dividends and earnings (the other two contributing sources of total return).  Both dividends and earnings are “real” phenomena as opposed to “pricing multipliers”.

27 27 Summary Case for Shareholder Yield  Assume overall economy (nominal terms) grows 6%. Assume current dividend yield is 2%. The return to equities will be 8%.  If interest rates rise, P/E ratios will fall. Under such a scenario, equity returns will be less than 8%.  To the extent that equities deliver positive returns, such positive returns will, out of necessity, be driven by dividends and earnings.  A clear opportunity exists by focusing on the sources of real returns.

28 28 Summary Case for Shareholder Yield  Through the use of a financial metric (free cash flow) rather than an accounting metric (earnings) it is easier to discern those firms most likely to utilize their free cash flow intelligently for shareholder value creation.  If the return on incremental capital to be deployed in the business is equal to or less than the present average return on capital, the capital should be returned to shareholders.  By assembling a portfolio of companies that offer superior dividend levels (direct dividends, share repurchases, debt reductions) and operating earnings growth we will be able to deliver performance superior to that of the broad-based equity market.

29 29 Portfolio Characteristics  Core Portfolio Process  Current Portfolio Allocation

30 30 Core Portfolio Process: Fund Competitive Positioning  Exceptional, robust, current yield > 5% Exceeds long bonds Roughly 300 bps greater than global equity indices  Consistent dividend growth 3% compound annual growth last three years 85% of companies raised their dividend in the last 12 months  Global participation and diversification  Innovative Portfolio Construction Stock-specific performance and income risks reduced Simultaneously allocating portfolio weight, income, and dividend growth  Special Dividend Capture Program

31 31 Core Portfolio Process: Epoch’s Proprietary Income Screen  Income Security and Growth Current yield > 4% 3+ years of monotonically increasing dividends  Cash from operations exceeds dividends (or cash returned) over trailing three years Want ample dividend coverage and to avoid liquidating income vehicles  No dividend cancellations in available financial history up to 20 years Dividend is “sacred”  Low incidence of dividend reduction in available history  Company has increased dividend in more than 50% of available history  Positive growth in cash flow from operations over the last 5 years  Liquidity: Market Capitalization > $250 million U.S. For lightly traded stocks, prospective position is less than one-day of trading volume

32 32  Take candidate stocks ( n ~ 150)  Use quadratic optimizer to maximize the probability of achieving the following portfolio goals: 1. Conventional Dividend Yield >= 5% 2. Recent Dividend Growth = 10% (Expected Incremental Yield = 0.50%) 3. R-squared of security dividend streams > 0.9 for two-thirds of holdings 4. Seek additional 1.5% of shareholder yield through expected share repurchases and debt reduction  Position Constraints: Maximum assets per security = 2.5% Maximum income contribution per security = 3% Maximum incremental income per security = 5% Minimum position = 0.50% Core Portfolio Process: Portfolio Construction

33 33 Current Portfolio Allocation

34 34 Current Portfolio Allocation

35 35 Minimum Purchase: $500 / Each subsequent investment minimum: $50. RSP Eligibility: 100% eligible for RRSPs, RRIFs, RESPs. Distributions: Paid monthly. Automatically reinvested with the option to receive in cash. Selling Concession: 5.00% upfront plus 0.50% per annum trailer. Liquidity: Daily liquidity. Summary details Class A (DSC):7-year declining schedule Class A (LL):3-year declining schedule Class A (MLL):4-year declining schedule Short-term trading fee may apply if units are sold within 30 business of purchase. Class A (DSC):10% free units, annually Class A (LL):Not Available Class A (MLL):Not Available DSC Withdrawal Privileges:Redemption Fees: Switches: Clients can switch units of one class of the fund to another class of the fund or to another fund managed by CI subject to any applicable fees. See the Prospectus for more details. Commission ISCDSCLLMLL Class A0-5%5.00%2.00%3.00% Service Fees ISCDSCLLMLL Class A1.00%0.50%0.50% first 3 yrs 1.00% thereafter 0.40% first 4 yrs 1.00% thereafter

36 36 Disclaimer Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ™CI Investments and CI Investments design are trademarks of CI Investments Inc.

37 37 THANK YOU


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